Amazon's Store for Beauty Professionals: Ulta and Sally Beauty Threat?

News of Amazon entering the professional beauty product industry did startle Wall Street, with competitors’ stock taking a hit. But with a longer look at the business of stylists, barbers, estheticians, manicurists, and others, it’s questionable whether the online Seattle juggernaut will disrupt the industry as its main source of supplies, amounting to several billion dollars in annual sales.

When freelance hair stylist Felicia Rials needs to restock shampoo, conditioner, or styling products, she now buys them at the Los Angeles salon where she works part-time, or drives to an out-of-the-way beauty emporium called Naimie’s—”a huge inconvenience,” she says.

Rials may soon be saving the trip, since she can now order the same products on Amazon without having to worry about their authenticity.

However, convenience isn’t the only thing driving the beauty business.

“Usually all the beauty supply stores or professional stores give us a discount or wholesale prices,” said Matilde Campos, a freelance stylist based in L.A. It’s unclear if Amazon is able to do that, but Rials notes the website’s prices aren’t much different from those at salons. Not to mention, some high-level stylists receive free products directly from brands, in exchange for social media posts.

Many small businesses use Amazon Prime memberships and its two-day free shipping option to order things like office supplies, snacks, and coffee. However, facing a tight deadline, stylists won’t be able use the service. Think: getting ready for a wedding or awards show like the Oscars, where Campos styled Roma star Yalitza Aparicio this year. “If I need anything last minute, it’s usually extremely last minute and I would run to the store to purchase it,” Campos said.

Beauty supply dynamics

Amazon’s latest addition to its online marketplace allows state-certified career beauticians to order professional-grade products directly from Amazon, through brand partnerships with salon-grade companies like Wella Color Charm, RUSK, OPI Professional, Pureology, and others. Until now, many of these products were only available on Amazon through third-party retailers, which deterred some beauty professionals, concerned about inadvertently buying knockoffs. (While these third-parties will still be able to sell on Amazon, they’ll be excluded from the professional beauty store.)

News that Amazon is entering the professional beauty product business took a bite out of the stock of industry leaders. Ulta Beauty shares initially dropped 2.6%, and Sally Beauty Holdings stock fell 17%. By Wednesday, shares of both companies had regained some ground. At stake is an industry where In 2017, total U.S. salon services and salon retail sales alone totaled $63 billion, according to Salon Today.

While there are smaller beauty supply companies, Ulta and Sally have dominated as the go-to beauty suppliers for independent stylists, offering a large inventory and popular customer loyalty programs at their brick-and-mortar locations and online.

Sally Beauty was founded in 1964 with a single store in New Orleans. Since then, the company has grown to 3,761 locations in 12 countries and annual sales of $2.3 billion, according to the company’s 2018 annual report. The store offers a Pro Beauty Club program where licensed stylists can receive discounts and price matching, so it’s the closest retail equivalent to the Amazon store.

Aside from beauty stores like Ulta, Sally Beauty, and small entrepreneurs, salons are often the only place to get niche pro-grade products.

“For independent people or small business owners that don’t necessarily have the buying power to attract business from brands saying, ‘you can distribute our products,’ [the Amazon store] opens up a much bigger opportunity for them to get products,” said Sarah Jindal, senior global analyst for beauty and personal care at Mintel.

Senses—and prices

There’s also a downside from ordering online: It prevents stylists from sampling new products in the store and speaking with sales associates. Beauty is an industry where the texture, scent, and wear of a product matter a lot, and ordering new products from a website eliminates the sensory part of the retail experience. That’s one of the reasons Glossier, the online retailer known for millennial pink branding and empowerment-first messaging, opened brick-and-mortar stores in New York, Los Angeles, and Seattle.

As an answer to Glossier—and example of the competitive beauty business— Amazon launched its own mermaid green in-house “no-nonsense” skincare line, Belei, in April. The line, reportedly developed by “listening to the Amazon customer,” reminded Glamour writer Halie LaSavage of “the Glossiers and Summer Fridays of the online beauty world” when she visited the online retailer’s pop-up showroom.

In order to use the Amazon store, stylists will need to create an Amazon Business account and upload their license. Without being a registered stylist, it’s difficult to get a clear sense of the prices for the certified buyers. “There has to be an impetus or some sort of attractive aspect for the buyer. If they’re not getting better pricing or shipping or the ability to bundle things together, then what’s attractive about it?” Jindal asks. “I’m sure there’s other information that becomes available to the buyer that has a certified account.”

Jindal speculates that Amazon might introduce the option to subscribe, so stylists won’t need to restock every month, but right now, it seems like the biggest benefit is shipping with Amazon Prime.

Ulta and Sally Beauty still in the game

But should the Amazon professional beauty store scare beauty meccas like Sally Beauty Supply, that cater to professionals and consumers? Sally in its 2018 annual report detailed plans to stay current. They include: expanding its “endless aisle” database of out-of-stock products, where customers can have any of the retailer’s 8,000 items shipped to their house, and updating its e-commerce and mobile capabilities for both Sally Beauty and its sister store, Beauty Systems. According to the same report, Sally Beauty Supply already ships 95% of its e-commerce orders in two days or less, just like Amazon Prime.

Plus, there’s not much overlap across Ulta and the Amazon beauty store. “Amazon’s Professional Beauty Store currently carries 51 brands. From this selection, Ulta only stocks around 30% of them. “We think this highlights different merchandising strategies and the lower quality brands on Amazon,” UBS analyst Michael Goldsmith told Investor’s Business Daily. “We continue to see Ulta having one of the best earnings algorithms in hardlines. We think it can generate [mid-single digit and high-single digit] comp growth, see modest operating margin expansion, and repurchase shares.”

“To be perfectly honest, I’m not worried about it,” Jindal said of the Amazon beauty store. “If I were Ulta or any of these other retailers, there’s that initial knee-jerk reaction you see whenever something like this gets announced, but when you think about who else is shopping at those retailers, the majority of business is probably [coming from] your average consumer. Is this going to be a massive hit? I would say probably not.”